1) From the data given below, you need to calculate the EPS for Vodafoneand then calculate it for the two years for which you have data.Ans :Calculation of the EPS for Vodafone :Earnings per share = (Net income – Dividends on preferred stock) ÷ Averagenumber of shares outstandingProfit for the financial period -16155.0 -9885.0Weighted average number 65012501146 61334032162of shares in issue in theperiodEPS -2.48 -1.611Analyzing the EPS of VODAFONE; For every share, ordinary shareholdershave lost 25 pence in 2002 and they lost 16 pence in 2001.2) Take the latest prices for Vodafones shares from either Yahoo or Reutersand rework the dividend yield value for Vodafone.Ans :Vodafones shares price 174.10The cost of equity capital is Rs 174.10Realized yield ApproachThis approach takes into consideration the basic factors of the D/P + gapproach but, instead of using the expected values of the dividends andcapital appreciation, past yields are used to denote the cost of capital. Thisapproach is based upon the assumption that past behavior will be repeated infuture and, therefore, may be used to measure the cost or ordinary capitalThe realized return over n-years period is calculated as (w1*w2*w3*….n)1/n
Where Wt, referred to as the wealth ratio, calculated as (Dt + Pt )/Pt-1 and t =1,2,3…….nDt = DPS for t payablePt = Price per share at the end of t year4) Using the data given below find the relevant data for Vodafone andcalculate its P/E ratio.Ans : market price of Vodafone pls 174.10 EPS 2.48 PE ratio 174.10/2.48= 70.25) Explain Capital Asset Pricing Model (CAPM) with formula andillustration.Ans : A model that describes the relationship between risk and expectedreturn and that is used in the pricing of risky securities.The general idea behind CAPM is that investors need to be compensated intwo ways: time value of money and risk. The time value of money isrepresented by the risk-free (rf) rate in the formula and compensates theinvestors for placing money in any investment over a period of time. Theother half of the formula represents risk and calculates the amount ofcompensation the investor needs for taking on additional risk. This is
calculated by taking a risk measure (beta) that compares the returns of theasset to the market over a period of time and to the market premium.Using the CAPM model and the following assumptions, we can compute theexpected return of a stock in this CAPM example: if the risk-free rate is 3%,the beta (risk measure) of the stock is 2 and the expected market return overthe period is 10%, the stock is expected to return 17% (3%+2(10%-3%)).Q.1 You are required to calculate the following for each one of the threecategories of equity shares ppearing in the above mentioned Balance Sheet:a) Intrinsic value on the basis of book values of Assets and Liabilitiesincluding goodwill;What Does Intrinsic Value Mean?1. The actual value of a company or an asset based on an underlyingperception of its true value including all aspects of the business, in terms ofboth tangible and intangible factors. This value may or may not be the sameas the current market value. Value investors use a variety of analyticaltechniques in order to estimate the intrinsic value of securities in hopes offinding investments where the true value of the investment exceeds itscurrent market value.2. For call options, this is the difference between the underlying stocks priceand the strike price. For put options, it is the difference between the strikeprice and the underlying stocks price. In the case of both puts and calls, ifthe respective difference value is negative, the instrinsic value is given aszero.
Goodwill 420Other Fixed Assets 11166Current Assets 2910Loans and Advances 933Total 15429Less: Secured loans 4500Current liabilities 1242Provisions 960 6702 8727Add: Notional call on 90 lakhsequity shares @ Rs. 2 per share 180 8907(b) Value per share on dividend yield basis:Value of fully paid-up share of Rs. 10= 20/15* Rs. 10=Rs. 13.33(approx)Value of partly paid-up share of Rs. 8 =20/15*Rs. 8=Rs. 10.67(approx)Value of fully paid-up share of Rs. 5=20/15*Rs.5 = Rs. 6.67(approx)(c) Value per share on the basis of EPS:Given : Profit after tax = Rs. 1,371 lakhs , 180 lakh equity shares of Rs. 10 each, fully paid up,90lakhequityshares of Rs.10 each, Rs. 8 paid up150 lakhs equity shares of Rs. 5 each,fully paidup. ,Reserves and surplus total of 3270 lakhEPS of share capital 1371/3270 = 0.419Earning per fully paid share of Rs. 10 = Rs. 0.419 * 10 = Rs. 4.19 Rs. 0.419 * 8=Rs. 3.352 Rs. 0.419 * 5= Rs. 2.095